By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Employment gains mask structural weakness
This week, Stats SA released the Quarterly Labour Force Survey (QLFS) results for 2Q25, a household-based survey that tracks employment trends. The data showed that the economy added 19,236 jobs compared to the previous quarter, bringing total employment (formal, informal, agriculture and private households) to 16,806,502, which is 154,169 higher than a year ago (Figure 1). However, the official unemployment rate rose to 33.2% from 32.9% in 1Q25, as the number of unemployed increased by 139,751 to 8,367,429 individuals. Combined with the ongoing moderation in the absorption rate, this underscores persistent vulnerabilities in the labour market and the economy's limited capacity to generate much-needed jobs.
Over the longer term, the economy has managed to recover the 2,272,053 jobs lost in the first half of the pandemic year (2020) and the 659,566 jobs lost in 3Q21 after the July 2021 social unrest. Yet, as Figure 2 illustrates, formal non-agricultural employment has diverged from its pre-pandemic trajectory - a sign of the economy's weakened structural health and diminished ability to achieve the job creation ambitions of the National Development Plan (NDP). The decline in formal employment has been particularly pronounced in the productive sectors such as manufacturing, mining, and construction, mirroring their long-term decline in real GDP contribution. Mining's share has fallen from 10.0% in 1993 to 4.4% in 2024; manufacturing from a peak of 14.9% in 1995 to 11.2% last year; and construction from 3.6% in 2009 (just before the 2010 FIFA World Cup) to 2.2% in 2024.
Similarly, real fixed capital stock, the value of physical assets used in production, in the manufacturing sector has declined steadily since peaking in 2008, alongside a gradual erosion of formal worker productivity. At the same time, both private and public sector fixed investment (gross fixed capital formation) have fallen short of NDP targets (Figure 3), reflecting weak demand, broader structural bottlenecks, depressed business confidence and limited fiscal space to support public sector infrastructure investment. While initiatives such as Operation Vulindlela aim to address these challenges, progress needs to be swift and decisive, particularly as South Africa also faces potential job losses from United States (US) tariff measures.
Encouragingly, some sectors, including community and social services, have provided partial relief. The finance, real estate, and business services sector, along with transport, storage, and communication, have generally increased their GDP contributions, acting as buffers to the broader unemployment crisis. However, these sectors alone cannot bear the burden of significantly reducing unemployment. A concerning trend is emerging in the trade, catering, and accommodation sector: after stabilising around 12.7% of GDP in 2016, its share has gradually declined to 11.3% in 2024, even though formal employment levels have remained relatively stable. A large part of this decline appears to be driven by weakness in the wholesale trade subdivision. This raises questions about the broader sector's potential to contribute meaningfully to the mass employment creation agenda, particularly amid the growing shift toward e-commerce.
Week in review
Manufacturing output (not seasonally adjusted) expanded by 1.9% y/y in June, after increasing by 0.7% (previously 0.5%) in May. Prior to May and June, manufacturing recorded an average monthly annual decline of 2.6% between November 2024 and April 2025, reflecting subdued domestic demand. Seasonally adjusted manufacturing production was flat (0% m/m) in June, following 2.2% growth in May. The full 2Q25 manufacturing data suggests that the sector contributed positively to GDP growth, based on 1.6% quarterly growth.
Mining production (not seasonally adjusted) expanded by 2.4% y/y in June after expanding by a modest 0.3% in May. The outcome exceeded Bloomberg consensus expectations of 1.4%. Seasonally adjusted mining output, which feeds into the official calculation of quarterly GDP growth, grew by 0.2% in June, after a revised 3.9% increase (previously 3.7%) in May. As a result, mining output expanded by 3.9% q/q in 2Q25, partly recovering from the 4.1% contraction in 1Q25 and confirming the sector's positive contribution to 2Q25 GDP growth.
Retail sales rose by 1.6% y/y in June, after posting 4.3% in May. On a monthly basis, retail volumes were flat, following a 0.2% increase in May. Despite the loss in momentum, this print suggests that the retail industry grew by 0.9% q/q in 2Q25, affirming our view of a recovery in GDP growth in 2Q24.
Week ahead
On Wednesday, data on consumer inflation for July will be released. Headline inflation was 3.0% y/y in June, up from 2.8% in April and May. Monthly pressure was 0.3%, led by contributions from core items as well as food and non-alcoholic beverages (NAB) inflation. Core inflation was also 0.3% m/m, but slightly weaker on an annual basis, posting 2.9%, down from 3.0% previously. Average fuel prices declined by 0.4% m/m and 11.2% y/y. Food and NAB inflation was 5.1% y/y, up from 4.8% previously, with monthly inflation of 0.7% that was led by meat inflation. We see headline inflation rising to 3.6% y/y and 0.9% m/m in July, as utility and food costs ratchet up and fuel deflation moderates. For the year, we forecast average headline inflation of 3.5%.
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